Taxation-Based Stabilization Policy in a Monetary Union
نویسندگان
چکیده
The paper investigates the stabilizing potential of fiscal policy in a monetary union. The discussion about fiscal stabilization policy has been revived in the context of EMU. We consider a taxation-based stabilization policy, where the fiscal authority intends to minimize the output gap. As policy instrument, we consider a time-varying component in taxes on consumption. The model combines a modified version of the open-economy aggregate demand specification of McCallum and Nelson (1997) with a Phillips curve and a fiscal policy rule. The impulse responses retrieved from the model simulation suggest that time-variable taxation may indeed be considered as a macroeconomic stabilization tool. The robustness of this conclusion should be scrutinized in further work. JEL—Classification: E 37, E 62, F 41
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